AOL to Buy Bebo for $850 Million

Social-Networking Site Could Help Once-Dominant Portal Regain Status

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NEW YORK ( -- Amid a slew of executive departures, AOL put out some good news this morning: It is acquiring social network Bebo for $850 million.

Bebo boasts a worldwide membership of 40 million, but is relatively small in the U.S.

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The move is the latest in a string of midsize acquisitions for the Time Warner-owned portal over the past year and evidence, said CEO Randy Falco, of AOL's good relationship with Time Warner. Bebo is also a well-trafficked web property that should add an avenue of distribution for the group of ad networks AOL has amassed, including, Tacoda, Quigo and Third Screen Media.

The Bebo acquisition "puts us squarely in a leading position in social media at a time when it's growing at a fantastic rate," AOL CEO Randy Falco wrote in a note to employees. "It will help power our strategic priorities across the board. And, just as important, by acquiring Bebo we can reclaim our heritage as a leader and innovator in the online community space."

Big in Europe
Bebo boasts a worldwide membership of 40 million, but is relatively small in the U.S. According to comScore, it had 4.8 million unique visitors in February, which puts it at a fraction of market leaders Facebook, with 32.4 million uniques, and MySpace, with 68 million. Most of Bebo's membership is in Europe and within that, it is concentrated in the U.K., where it is the 13th-largest site with 11.4 million unique visitors. Bebo has plans to expand into France, Germany, Holland, France and Spain in the coming months, and its European focus should bode well for AOL's expansion plans there. AOL and Bebo execs all appeared bullish on the idea of integrated AOL's instant-messaging tools, AIM and ICQ, with Bebo.

"I think it's going to enhance the experience for our users," Bebo President Joanna Shields said.

Recently, talks between Time Warner and Yahoo have surfaced, and the Bebo acquisition raises questions as to whether it makes a Yahoo-AOL deal a more attractive, albeit more complicated, combination. Neither AOL nor Bebo execs would comment on the Yahoo rumors. Mr. Falco said AOL didn't talk to Google, which owns 5% of AOL, about the Bebo purchase.

Dubious moneymaker
Social-networking sites, however, have proved hard to monetize — in its recent earnings call Google alluded to difficulties making its MySpace ad agreement fruitful. Ms. Shields, who was a senior exec in Google's European operation before coming to Bebo, said it should be no surprise that search-related advertising doesn't monetize in a social-networking environment, because social networks are all about entertainment and self-expression.

Much of Bebo's business is display advertising across the site, but Ms. Shields said its businesses include "high-touch or engagement campaigns and marketing," where Bebo works directly with brands and agencies to create messages that are likely to go viral because users will copy those messages to their profiles and share them with friends. "This is an evolving science," she said.

Mr. Falco admitted there would be more advertising on Bebo, "but not in a way that disrupts user experience." Bebo's current ad models include engagement marketing, where Ms. Shields said that "we find and create ways to deliver a message so it's spread virally by user community in a natural way." Bebo also bets heavily on integrating brands into original content, such as its program Kate Modern, an online drama from the makers of "LonelyGirl15" that's more transparent than the original. Finally, Bebo limits ads to one per page — although that could change. When asked about it, Ms. Shields said: "You have to make that business decision but we are committed to keeping that user experiences as engaging and personal as possible. When people receive an ad that's relevant and resonates with them it's not intrusive."

AOL has been through a string of management upheaval at its Platform A division. Those who've departed the company recently include Exec VP Dave Morgan, who founded and chaired Tacoda, has left; Kathy Kayse, the former People magazine publisher who led branded ad sales for AOL; and Curt Viebranz, who was CEO of Tacoda and then tapped to lead Platform A. Viebranz was replaced by Lynda Clarizio, president of

AOL's Mr. Falco defended the Bebo purchase price: "We've been particularly prudent in the prices we've paid for the various companies we've acquired over the past few years." He contrasted its price with Facebook's $15 billion implied value. "We think [Bebo] is an excellent asset at the right price," he said.
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